Strategic Decisions and Challenges: A Deep Dive into Ford's Stock Plunge and Future Prospects

Ford Stock Plummets After Company Reports Cost Improvements But Fails to Meet Expectations Ford's shares experienced a brief surge before plummeting after hours on Monday. This came as a result of the company's guidance falling short of expectations. Like many other automakers, Ford is currently struggling to balance the costs of EV production, high interest rates, and an exhausted American consumer market. Ford reported a third-quarter revenue of $46 billion, with a net income of $0.9 billion. This figure includes a $1 billion charge related to its electric vehicle business, which the company had previously disclosed. The adjusted earnings before interest and taxes (EBIT) for the quarter were reported at $2.6 billion.

Third-Quarter Figures

Here are the company's third-quarter figures compared to estimates, as reported by Bloomberg: - Total Revenue: $46.2 billion, up 5.5% year-over-year (y/y), surpassing the $43.07 billion estimate. - Ford Blue Revenue: $26.2 billion, exceeding the $24.63 billion forecast. - Ford Model e Revenue: $1.2 billion, below the $1.42 billion estimate. - Ford Pro Revenue: $15.7 billion, above the $15.28 billion projection. - Adjusted EPS: 49 cents, matching analyst expectations. - Adjusted EBIT: $2.6 billion, up 18% y/y, though below the $2.77 billion estimate. - Adjusted EBIT Margin: 5.5%, improving from 5% y/y but short of the 6.3% forecast. - Ford Blue EBIT: $1.63 billion, missing the $1.77 billion estimate. - Ford Model e EBIT Loss: $1.22 billion, smaller than the expected loss of $1.34 billion. - Ford Pro EBIT: $1.81 billion, outperforming estimates. Ford's Ford Pro division saw a significant growth, with revenue increasing by 13%. Furthermore, Ford Pro Intelligence, the company’s paid software service, reported a 30% increase in subscriptions, reaching nearly 630,000 users. The company also announced a regular fourth-quarter dividend of 15 cents per share. For the full year of 2024, the company now expects adjusted EBIT to reach approximately $10 billion.

Revised Full-Year 2024 Outlook

Ford revised its full-year 2024 outlook, now projecting adjusted earnings before interest and taxes (EBIT) of approximately $10 billion. This is a decrease from its previous guidance of $10 billion to $12 billion. However, the automaker maintained its forecast for adjusted free cash flow, which is expected to remain between $7.5 billion and $8.5 billion. Here's a full look at its year forecast: - Adjusted EBIT: Now expected to be $10 billion, down from the prior range of $10 billion to $12 billion, and below the Bloomberg consensus estimate of $10.63 billion. - Ford Pro EBIT: Forecast unchanged at $9 billion, compared to the prior range of $9 billion to $10 billion. - Ford Blue EBIT: Now expected at $5 billion, down from the previous range of $6 billion to $6.5 billion. - Ford Model e EBIT Loss: Projected to be $5 billion, in line with earlier guidance of a $5 billion to $5.5 billion loss. - Ford Credit EBT: Anticipated to reach approximately $1.6 billion. - Capital Expenditure: Revised to $8 billion to $8.5 billion, compared to the previous forecast of $8 billion to $9 billion, and close to the Bloomberg consensus estimate of $8.39 billion. - Adjusted Free Cash Flow: Maintained at $7.5 billion to $8.5 billion. Ford's President and CEO, Jim Farley, stated that the company is in a strong position with Ford+ as the industry undergoes a sweeping transformation. He emphasized the company's strategic decisions and tough actions to create advantages for Ford over the competition in key areas like Ford Pro, international operations, software, and next-generation electric vehicles.

Market Challenges and Future Investments

Last month, Morgan Stanley's Adam Jonas downgraded Ford due to Chinese supply and rising delinquencies. Jonas expressed concerns about affordability in the U.S. market, stating that it is highly stretched, with inventory levels now back to pre-COVID norms. Auto Asset-Backed Securities (ABS) data shows a growing proportion of consumers are staying delinquent for longer, with higher severity rates. Although subprime defaults are lower in 2023 compared to 2022, prime defaults have increased. Jonas also pointed out that the capital intensity required to compete in Advanced Driver Assistance Systems (ADAS) and Autonomous Vehicles (AV) is often overlooked. As the AI and data themes gain traction in the automotive sector, automakers will need to invest tens of billions in proprietary AI models.

Company's Future Outlook

Ford Vice Chair and CFO John Lawler commented that the company is being remade with Ford+ into a higher-growth, higher-margin, more capital-efficient, and more durable business. He also highlighted the work done over the past few years to restructure the global business and tailor the product lineup to segments where the company knows its customers best.

Bottom Line

The challenges faced by Ford, such as high EV production costs and a stretched American consumer market, are not unique to the company. Many automakers are grappling with similar issues as they navigate the transition to electric vehicles and advanced automation technologies. Despite these challenges, Ford's strategic decisions and restructuring efforts seem to be yielding positive results in key areas. What are your thoughts on this? Do you think Ford's strategies will pay off in the long run? Share this article with your friends and get their opinions. Remember, you can sign up for the Daily Briefing, which is available every day at 6pm.